Financial Statement Preparers' Revenue Decisions: Accuracy in Applying Rules-Based Standards and the IASB-FASB Revenue Recognition Model

• Published in: Journal of Accounting and Finance Vol. 14; no. 6; p. 21
• Main Authors: McCarthy, Mary, McCarthy, Richard
• Format: Journal Article
• Language: English
• Published: West Palm Beach North American Business Press 01.12.2014
• Subjects: Accounting standards; Accounting systems; Decision making; Earnings management; FASB exposure drafts; Financial accounting standards; Financial statements; International accounting standards; International Financial Reporting Standards; Investment advisors; Quality standards; Revenue recognition; Staff accounting bulletins; Studies

The IASB-FASB revenue-recognition project is due to be finalized over the next year with the result being a shiftfrom a rules-based set of accounting standards to a principles-based standard. The purpose of this research is to examine financial managers' revenue decisions under a principles-based accounting standard compared to a rules-based accounting standard. The experiment included 127 experienced financial managers with an average of 20 years of experience and 82% at a manager level or above. The results indicate applying rules-based standards provide less accurate revenue decisions. Additionally, there was not a statistically significant difference in the amount of judgment required when applying rules-based standards and subjects applying principles-based standards.